Invest in US-domiciled funds with UK (HMRC) reporting status

I've read about the tax issues with US citizens investing in PFICs per this article: https://thunfinancial.com/home/american-expat-financial-advice-research-articles/american-expat-pfic-uk-non-reporting-fund-investment-trap-article/

It recommends this: American expats should thread the needle of U.S. and UK compliance by investing in U.S. registered funds with UK “reporting fund” status.

Is anyone doing this now and if so, which broker do you use?  I'm not sure how to find one that offers this.

Or, if you've found another investment solution,  I'd love to hear about it.  I only have a small amount of money to invest but it would be great to get started.

I am doing this with Vanguard USA.  I kept my US account when we moved back, having earlier converted my funds with them into HMRC Reporting Vanguard ETF funds.

I don’t know how one would go about this if they are not resident in the USA and don’t have a US brokerage account.

Also highly relevant is your investment vehicle here - retirement plan or just simple investment? Obviously a retirement plan is going to be the most tax efficient All of my investing has been done under a retirement plan, using a SIPP as the wrapper - see the penultimate paragraph of the Thun article - most SIPP providers offer an extensive range of funds including ETF's etc. The challenge is getting or finding a SIPP provider that accepts US persons - and then one that doesn't charge an arm and a leg in fees. I've settled on I-Web and am generally happy with their range of investments and their low fees.

If you're going the simple investment route, that's more difficult - here's HMRC's up to date list of reporting funds- nearly 80,000 of them! - clearly most are not US domiciled - but if you have specific US funds you want to look at, this is a good place to cross reference their UK reporting status.

https://www.gov.uk/government/publications/offshore-funds-list-of-reporting-funds

In terms of a broker, (which I haven't used) you could probably start by looking at https://www.schwab.co.uk/

Good Luck

Also highly relevant is your investment vehicle here - retirement plan or just simple investment? Obviously a retirement plan is going to be the most tax efficient All of my investing has been done under a retirement plan, using a SIPP as the wrapper - see the penultimate paragraph of the Thun article - most SIPP providers offer an extensive range of funds including ETF's etc. The challenge is getting or finding a SIPP provider that accepts US persons - and then one that doesn't charge an arm and a leg in fees. I've settled on I-Web and am generally happy with their range of investments and their low fees.

If you're going the simple investment route, that's more difficult - here's HMRC's up to date list of reporting funds- nearly 80,000 of them! - clearly most are not US domiciled - but if you have specific US funds you want to look at, this is a good place to cross reference their UK reporting status.

https://www.gov.uk/government/publications/offshore-funds-list-of-reporting-funds

In terms of a broker, (which I haven't used) you could probably start by looking at https://www.schwab.co.uk/

Good Luck

Good info, thanks.

I have a question.  Would the IRS accept funds held within Schwab.co.uk the same as regular US funds held within Schwab.com or would they tax them as Passive Foreign Investment Companies (PFICs)?

I'd love to be able to give you a definitive answer here, but I'd defer to Schwab for the answers.

They do say the following:

Simplified U.S. tax reporting due to all accounts being U.S.-domiciled dollar accounts.
Clear online reporting and a 1099 form to help your IRS filing.

https://www.schwab.co.uk/expatriate-essentials

I'd love to be able to give you a definitive answer here, but I'd defer to Schwab for the answers.

They do say the following:

Simplified U.S. tax reporting due to all accounts being U.S.-domiciled dollar accounts.
Clear online reporting and a 1099 form to help your IRS filing.

https://www.schwab.co.uk/expatriate-essentials

That sounds great.  With US domiciled accounts and 1099s issued that should avoid the PFIC issue.

Looking at the site I can't see any actual funds to see if they are HMRC Reporting but given that they are based in the UK one would hope that HMRC views their funds as Reporting Funds.

I am doing this with Vanguard USA.  I kept my US account when we moved back, having earlier converted my funds with them into HMRC Reporting Vanguard ETF funds.

I don’t know how one would go about this if they are not resident in the USA and don’t have a US brokerage account.

I did not have US accounts still in place as I left at age 22. However, I engaged an IFA  here and they arranged for a compliant accounts thru Pershing/Mellon -- quite a few vanguard funds were compliant on that platform.  a lot of paperwork to set up! 

I did not have US accounts still in place as I left at age 22. However, I engaged an IFA  here and they arranged for a compliant accounts thru Pershing/Mellon -- quite a few vanguard funds were compliant on that platform.  a lot of paperwork to set up!

Excellent, that’s good to know.

For anyone to answer but since Durhamlad has UK reporting funds at a Vanguard U.S account , does Vanguard supply you with dividends or sale records as pertains to your account, i.e. do they send you and HMRC dividend, sales, interest, etc like they would to the IRS?  Or just U.S. and then up to you to report being different tax years etc.

For anyone to answer but since Durhamlad has UK reporting funds at a Vanguard U.S account , does Vanguard supply you with dividends or sale records as pertains to your account, i.e. do they send you and HMRC dividend, sales, interest, etc like they would to the IRS?  Or just U.S. and then up to you to report being different tax years etc.

Vanguard just send me the one lot of 1099 forms that that I use to complete my IRS return. I then use the applicable exchange rates when reporting those dividends, interest payments and capital gains.  For reporting capital gains I use the exchange rate applicable on the date the shares were purchased and sold so the capital gain in £s is much different than the capital gain in $s. i.e. you can't simply take the capital gain in $'s reported on the 1099-B and convert to £'s

From the start I have made a statement in the white space of the HMRC SA forms that state that I am using the calendar year for my US income to be concurrent with the HMRC tax year.  This makes it much easier for me, particularly with my 2 US pensions, I don't have to keep a month by month track of income.